Human Capital and the National
Innovation Strategy for
Competitiveness
The case of Chile
Hernán Araneda
Head, Centre for Innovation in Human Capital
Fundación Chile
Prepared for the OECD/Germany Workshop
Advancing innovation: human resources, education and training
Bonn, 17-18 November 2008

About Fundación Chile
Who we are:
Fundación Chile is a non-profit, privately owned corporation, created in 1976 by an agreement between the Chilean Government and ITT Corporation (U.S.A.).In
2005 BHP Billiton became a co founder.
Our Mission:
To increase the competitivity of human resources and productive sectors and services, by promoting and developing high impact innovations, technology transfer and management for the country.

“There are three proven models worldwide that are examples for emerging economies: The industrialization model of China, The outsourcing model of India and the model of Fundación Chile”
(OECD)
“…by 1982, Fundación Chile had its first salmon farm up and running. Seven years later it sold it to a
Japanese company for $22 million” (Businessweek)
“In 2004, its first year, the laboratory turned out 1.7m partially fattened lilly bulbs, using up-to-date biotechnology. Vitro Centre is a joint venture between local investors, Fundación Chile and a Dutch firm… (The
Economist)


16 million people, native language spanish

Upper Middle income country, per capita GDP US$ 12.000
(purchasing power parity)

Average GDP Growth 1990-2005: 5,5 %

Global Competitive Index 2007: 26

Significant progress in poverty reduction: 44% to 18%
(1986-2006).

Unemployment rate: 7.3 (best in 8 years)

High coverage in primary and secondary education

Participation in Tertiary Education has tripled in the last
15 years.

Chile is performing fine in several rankings…
China
Singapore
South Korea
Chile
Indonesia
Mexico
Poland
OECD
Argentina
Brazil
Hungary
Czech Republic
GDP : Annual Growth
Rates Selected
Countries: average
1990-2005
0.6
1.3
2.0
2.6
2.5
2.4
3.1
4.5
5.5
6.1
5.9
POVERTY
% of population
1987
44%
Source: ECLAC
9.0
2006
18%
Corruption Perception
Index
Ranking
Among Latin
American Countries
Overall Ranking
Among 146
Countries
1
20 st th
Source: Transparency International
(www.transparency.org), 2005

 Percapita income still lacks behind the OECD (40% of
OECD average income level)
 Unequal income distribution (0.55 Gini; 0.75 excluding the highest income decile)
 Economy too dependent on commodities: more R&D investment required
 Relatively low labour productivity
 Low quality of learning outcomes across the education system (Simce, TIMMS, PISA, IALS)
 Uneven distribution of opportunities in higher education and training
 Low participation of women in the labour force

The country’s most important goal: doubling percapita income in the next 15 years to become a developed country
CHILE
Estonia (17,802)
Lithuania (15,443)
Argentina
Malaysia (11,915)
IMF: per capita GDP
(US dollars, Sept. 2006)
Singapore
(29,743)
Taiwan (29,244)
Spain (27,542) 25.000
USA (43,236)
Canada (35,779)
Hong Kong
35.000
Finland (32,822)
Australia (32,127)
UK (31,585)
Sweden (31,264)
France (30,150)
Slovenia
(23,159)
Korea (21,887)
… and this is a major challenge. Only once in our history have we managed to double our per capita GDP in
16 years: 1988-2004.

Business as usual is not sufficient; We must decisively move towards a Knowledge Based
Economy
Growth depends less on capital and labour accumulation than on efficient use of these factors
(Total Factor Productivity).
We need to move from static comparative advantages linked to natural resources to a stage where the incorporation of more knowledge into products and services is crucial.
In brief - the capacity to transform knowledge into wealth, the capacity to INNOVATE.



Over the last decade TFP contribution has fallen dramatically…and forecasts are frightening.
TFP would account for less than 25% of Chile’s growth in the 2007-2011 which compares poorly with the figure for competing economies (40% to 50% according to The
Economist Intelligence Unit)
TFP contribution to growth 2007-2011
1984-1997
1998-2005
Growth
7.1
3.6
TFP
2.8
0.9
Capital
2.1
2.4
Labour
2.2
0.4
CHILE
Selected countries*
* Bálticos, Europa del Este y países de rápido crecimiento de Asia.

1. Increasing public funding to support the strategy
(new mining tax).
2. R & D tax incentive for companies.
3. Creation of a National Innovation Council for
Competitiveness – National Innovation Strategy




 To propose a roadmap for a development process based on competitiveness supported by human capital and knowledge.
To look after policy coherence
Defining strategic objectives
Defining the roles of agents
Resource allocation aligned with the strategic priorities

INNOVATION STRATEGY
HUMAN
CAPITAL
BUSINESS
INNOVATION
(value creation)
R&D strategycally oriented
EFFICIENT INSTITUTIONALITY
(long term vision, “accountability”, regionally focused)
SELECTIVITY
Focus on economic clusters
COMPETITIVENESS

Serv.medio
ambiente
Outsourcing
0.17
0.16
0.15
Crecimiento PIB en 10 a ños Industrias creativas
1 bill ón de pesos
Sectores que se destacan
Alimentos procesados de consumo humano Servicios financieros
Acuicultura
0.13
0.12
0.11
0.10
0.09
0.08
Medio
0.07
0.06
0.05
0.04
0.03
Bajo
0.02
0.01
Vitivinicultura
Pl ástico
Comunicaciones
Horticultura primaria
Plataforma de negocios para LA
Farmac éutica
Consultor
Medicina especializada
Educaci ón superior
Log ística y
ía
Bovino transporte
Alimentos proc. para y ovino consumo animal
Industria qu ímica
Fruticultura primaria
Porcicultura y avicultura
Miner ía no met álica
Construcci ón
Comercio minorista
L ácteo
Miner ía del cobre y subproductos
Productos de madera
Turismo 1
Celulosa
Silvicultura y papel
Metalurgia
0.00
Alto Medio Bajo
1.3
1.5
1.7
1.9
2.1
2.3
2.5
2.7
2.9
3.1
3.3
3.5
3.7
3.9
4.1
4.3
4.5
Esfuerzo para lograr la competitividad necesaria
(1) Dentro del sector de Turismo fue considerado el subsector de Turismo de Intereses Especiales, que tiene un dinamismo much o mayor que el sector de Turismo tradicional

BUSINESS
INNOVATION
Consolidate a business system aimed at the creation of value by means of innovation – in all its forms and aspects – as a competitiveness strategy in global markets.
Science with strategic orientation
Strengthen a platform for the creation, dissemination and application of knowledge in a permanent and consistent research effort coherent with the country’s productive and social problems.
Human
Capital
To establish an accessible and top-quality life-long-learning system which allows the country to rely on the relevant human capital the Knowledge Economy requires

Average years of schooling (ages 25-65)
14
12
10
8
6
7,89
4
2
0
N ze al an d
K or ea
Fi nl an d
C he c
R ep
C he ca
H ol la nd
Ire la nd
H un ga ry
G re ec e
A rg en tin a
C hi le
M al ay si a
S pa in
M ex ic o
C ol om bi a
P or tu ga l
B ra zi l

Prof. and techn. as a % of the current workforce
50
40
30
20
10
0
F in la nd
H o lla nd
C h ec
R e p
N ze al a nd
Ir el an d
S pa in
H u ng ar y
K or e a
C o lo m bi a
M ex ic o
M al ay si a
C h ile
B ra zi l

Distribution of the Population aged 25 to 64 years by highest level of education completed, 2003
100
90
80
70
60
50
40
30
20
10
0
Thailand
2003/04
Paraguay
2002
Peru 2002 Brazil 2002 Indonesia
2002/03
Jordan
2002/03
Chile 2003 Argentina
2002
Uruguay
2002
Malaysia
2002
Russian
Federation
2002/03
OECD mean 2003
WEI mean
2003
Primary Lower secondary Upper secondary Tertiary (type B) education Tertiary (tipe A) education
Source: Education Trends in Perspective – Analysis of the World Education Indicators. UNESCO-UIS/OECD 2005

Adult Functional Literacy Survey (1998)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
G erma n y
Sw e de n
U n ite d
St at es ite d
Ki n
U n gd om
C h ile
C ze c
R ep u bl ic
H u ng a ry
Po rt ug al
PERFORMANCE LEVEL
Level 4/5
Level 3
Lever 2
Level 1

% of Enrollment in Higher Education
90
80
70
60
50
40
30
20
10
0
Chile S.Korea Estonia Ireland Latvia Lithuania
1991
2004

100
90
80
70
60
50
40
30
20
10
0
PRIMARY EDUCATION COVERAGE BY INCOME QUINTILE, 1990 - 2003
95,6
98,5
96,9
99,1 97,7
99,5
97,5
99,5 98,9 99,5
I II III
Income Quintiles
1990 2003
IV V
100
90
80
70
60
50
40
30
20
10
0
SECONDARY EDUCATION COVERAGE BY INCOME QUINTILE, 1990 - 2003
87,7
92,0
94,2
87,1
96,9
94,5
98,8
73,9
77,2
80,8
I II III
Income Quintiles
1990 2003
IV V

80,0
70,0
60,0
50,0
40,0
30,0
20,0
10,0
-
1990 1992 1994 1996 1998 2000 2003 2006
I 4,4
II 7,7
7,9
9,8
9,1
10,2
8,8
15,4
8,7
13,3
9,6
17,7
14,7
21,4
19,8
25,1
III 12,4 13,0 17,4 21,5 23,2 31,7 33,1 33,3
IV 22,0 23,9 32,1 35,2 38,9 43,0 46,9 47,2
V 40,7 41,2 54,8 60,0 65,4 67,4 73,6 67,1

ADULT PARTICIPATION IN TRAINING
(15 to 60 years people)
16
14
12
10
8
6
4
2
0
13,9
CASEN Survey 1998
9,1
CASEN Survey 2000
13,6
CASEN Survey 2003

Most participants in training come from big companies …
PARTICIPATION RATE IN TRAINING PROGRAMS BY ENTREPRISE SIZE
45,0
40,0
35,0
30,0
25,0
20,0
15,0
10,0
5,0
0,0
6,0
18,3
26,0
38,6
1 to 9 10 to 49 50 to 199
Number of workers
200 or more
Source: SENCE and CASEN Survey 2003


High coverage in initial education but low quality of learning outcomes (TIMMS, PISA, etc.)

A significant % of adult population without initial education lacking basic skills

Students lacking academic and employability skills for a friendly school-to-work transition

Increasing demand for post-secondary learning opportunities: education seen as the vehicle for social mobility (high private returns, etc.)

Expansion of the market of post-secondary ed. and training providers (esp. private universities) but no public information about graduates labor market outcomes

Concern about quality and relevance of programs, accreditation frameworks still to be piloted

 Disjointed “systems” providing LLL and training opportunities,
 Public effort on training limited to a tax incentive for companies; no funding arrangements for individual workers.
 Vocational education not well funded by government: poor quality and relevance for industry
 A significant amount of (competent) workers without formal recognition for their skills

Lack of a shared vision and agenda among ministeries relevant for LLL: education, labour, economic development.


Adult education, technical-vocational education, workforce training and career guidance systems seen as missing pieces in the 90’s reforms

Learning outcomes and not only “inputs” and
“processes” as the best approach once universal coverage is achieved
 Lack of a coherent public policy on vocational education (both secondary and postsecondary)


Main purpose: design and piloting new arrangements, capacities and funding mechanisms supporting LLL

Multisectorial: Min of Education; Min Labour & Social
Affairs; Min of Economic Development; Industry
Associations; companies

Combination of remedial actions; learning innovations; institutional innovations; ”demostrative projects”

Diverse clientele: adults with low educational attainment (unemployed
/ bad jobs); young people attending VE;
Workforce

A systemic view from the National Competency System
Labour Market
Intermediation /
Information
Services
HR Management
(recruitment, selection, performance appraisal, training, sucession plans, rewards, etc.)
Industry
Endorsed
Competency
Standards
Competency
Assessment &
Certification
System
NATIONAL LABOUR COMPETENCY SYSTEM
Technical
Vocational Education
(secondary, postsecondary)
National
Training System

15 economic sectors
15 industry specific associations, 150 leading companies
1. Seleccionar e
Identificar Sector
Productivo
MOBILIZE
2. Movilizar Actores
Claves
DEFINE
OCCUPATIONAL
AND EMPLOYABILITY
SKILLS
STANDARDS
500 occup standards, + employability skills models (8 competencies) + entrepreneurship skills
-Web site competency standards
-New regulation
-Media coverage
PROMOTE
AND
STANDARDS
AS NEEDED
KEEPING
MANTENIENDO LA
VENTAJA
COMPETITIVA
VALIDATE
STANDARDS
WITH
STAKEHOLDERS
40.000 workers certified
Employability skills for
7.000 students
EVALUATE AND
6. Evaluar y Certificar
Trabajadores
ADAPT CURRICULA
5. Adaptar Currículum y
Formación según
Methodology transfer to
300 VET providers

 Several pilots and demostrative projects articulating supply and demand at a regional level. Impact evaluation going on (WB).

Some of the regulations needed in place or in final stage of approval (ie National Competency System)

Competency “movement” underpinning curriculum development in most higher institutions across the country. “Modules” and “Competency Based VET
Programs” being developed.

National Agenda for Innovation and Competitiveness, a new driving force for LLL in the country, as far as it supports human capital in strategic economic clusters


Competing policy agendas still a problem: M.Education too busy with the unfinished school reform and
M.Labour with the pension reform and persistent youth unemployment

A new policy for secondary and postsecondary TVET

Qualifications framework informing pedagogical innovation and new learning materials

Quality framework for QA and accreditation

Diversifing funding mechanisms for learners beyond initial education

Innovation in education & training.